Red Rose Payroll Ltd v Revenue and Customs (Missing Trader Intra Community ("MTIC") fraud in the temporary labour market, Whether the Appellant knew or ought to have known that the relevant transactions were connected with fraud) [2025] UKFTT 878 (TC) (18 July 2025)

Red Rose Payroll Ltd v Revenue and Customs (Missing Trader Intra Community ("MTIC") fraud in the temporary labour market, Whether the Appellant knew or ought to have known that the relevant transactions were connected with fraud) [2025] UKFTT 878 (TC) (18 July 2025)

HMRC failed to establish, on the balance of probabilities, that the Appellant knew or ought to have known that its transactions were connected with VAT fraud. The only factor indicative of knowledge was inadequate due diligence, which alone is insufficient to meet the legal threshold. There was no evidence of actual knowledge, and the Appellant's conduct did not amount to turning a blind eye to fraud.

Citation
[2025] UKFTT 878
Parties
Appellant: Red Rose Payroll Ltd; Respondents: The Commissioners for His Majesty's Revenue and Customs
Jurisdiction
United Kingdom
Judgment Date
18 July 2025
Procedural Posture
Tax Appeal / First Tier Tribunal (tax Chamber) Final Judgment
Outcome
Appeal allowed
Legal Topics
VAT Fraud, Missing Trader Intra Community (mtic) Fraud, Input Tax Deduction Denial, Supply Chain Due Diligence, Penalty Assessment, VAT Deregistration
Tax Law European Union Law VAT Fraud Missing Trader Intra Community (mtic) Fraud Input Tax Deduction Denial Supply Chain Due Diligence Penalty Assessment VAT Deregistration

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Parties

Red Rose Payroll Ltd

Appellant

The Commissioners for His Majesty's Revenue and Customs

Respondents

Procedural Posture

Tax Appeal / First Tier Tribunal (tax Chamber) Final Judgment

Legal Issues

  1. 1 Whether the Appellant knew or ought to have known that its transactions were connected with the fraudulent evasion of VAT under the Kittel principle
  2. 2 Whether the transaction chains were part of an orchestrated overall scheme to defraud the revenue

Ratio Decidendi

HMRC failed to establish, on the balance of probabilities, that the Appellant knew or ought to have known that its transactions were connected with VAT fraud. The only factor indicative of knowledge was inadequate due diligence, which alone is insufficient to meet the legal threshold. There was no evidence of actual knowledge, and the Appellant's conduct did not amount to turning a blind eye to fraud.

Court Disposition

Appeal allowed

Orders

  • The Appellant's appeal against the denial of input tax, VAT deregistration, assessment, and penalty is allowed.